Realist, not conformist analysis of the latest financial, business and political news

What’s Really Happening At GM

GM declared that it is going to reduce its head count by 15%, drop some
poorly selling car models, and close 5 “under-utilized” (single-shift)
factories. This story has been told to American TV viewers only by
bawling union members who have worked all their lives in Oshawa, Ontario.

In other words, GM has decided to get more efficient, and to reduce jobs
(that is, to reduce costs). And the entire US government is up in arms.
Apparently last year’s cut in business taxes from 35% to 21% was to
make it feasible for GM to remain inefficient, and above all not pursue
self-interest. However, as no one grasped, the vehicle market remained
competitive and GM has to get leaner.

GM touched on themes that, in fact, Ford cited under its president Alan
Mulally, in the Obama years when GM instead went under federal
receivership: Fewer body frames on which to design vehicles, no
“fiefdoms” in which different products would have different part numbers
for identical bolts, unify and streamline engineering so that a product
could be rolled out within months after Marketing sensed a public desire
for it. That is, GM is trying to catch up. Ford, meanwhile, is selling
poorly in China, believes that the problem is its ageing and
out-of-fashion product line, and is rushing new models to market.

But there is unanimity in the US government that GM has a duty to take
car buyers’ money and give it to that 15% of its workforce whose
services are not really needed. Of course, autoworkers are voters,
whose vested interest is that they continue to be able to do the same
job the same way, needed or not, and they have a union to herd them into
unified political action. Car buyers have a self-interest too, the
opposite one, but they rarely assert it in political campaigns, but just
shop around or pay the sticker price.

Donald Trump might not understand the theory of economics, but top
economic advisor Larry Kudlow knows it forward and backward. But even
he is doing nothing but stating the Administration’s case: GM’s decision
goes against the interest of (unnecessary) workers, and complicates the
US’s relationship with Canada.

On Tuesday, Trump threatened to withdraw government subsidies from GM,
those granted in the Obama years to promote its survival, since it had
become a department of the US Government. This would be a fine idea;
low business tax rates provide that the company gets to keep more of any
profits it makes, while subsidies come in the door no matter how
inefficient GM remains. Kudlow expresses the exasperation of the
conventionally minded, that the return of a greater portion of the money
GM made was not to be applied “merely” to enrich the corporation, its
management, or its dividends. Democratic opposition to the Trump tax
cut, after all, was based on the uncertainty that much of it would flow
to people who vote…for Democrats. Unfortunately, corporate
self-interest is as entrenched as is the tendency for occupants of the
Capitol and White House to measure everything in terms of their own
re-election. That extra 14% of net profit left in GM’s hands means GM
can spend it on what is best for GM…including becoming more efficient.

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Rhoda Klapp
Rhoda Klapp
5 years ago

I loved picking an Impala out of the rental line. Really good car and I wish they were sold here (although too big for UK car parks).

I note that BMW, VAG, Mercedes, Volvo, Lexus, Genesis, Kia, Hyundai and Jaguar can all sell cars in the US.

5 years ago

Tony Abbott (aka The Mad Monk), when Prime Minister of this glorious land of Oz, stopped state subsidies to the auto workers in Melbourne. Overnight GM, Ford and Toyota buggered off leaving the unions seething. We still get the same cars at the same prices. So a win for the taxpayer with the bonus of pissing off the unions. I believe the Impala is sold here as the Commodore.

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